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FEATURE

Meet your New Customers

by Stuart Borsch

On the TV screen, you see a young, sweaty factory worker caked with the grease and dirt of a long, hard shift. Suddenly he notices a beautiful young girl outside, hand in hand with her mother. He’s enthralled love at first sight. He wants to meet her, but he’s a mess. Then he remembers his 10 piastre packet of Pert Plus and dashes off to the factory sink. He cleans up, meets the girl and, as the scene fades out, he looks to the camera flashing a triumphant smile and bouncy hair.

So goes the latest commercial for one of Proctor & Gamble’s many products. The product isn’t new, but the selling point has changed. No longer are we watching an upper-middle class family enjoying the thrill of soft, shiny, full hair. Now, even the young factory worker is entitled to that wavy lift after a hard day’s work.

And the new egalitarianism of consumption doesn’t end at hair. Egyptians from the low end of the scale of income distribution are in line for a much more comprehensive series of pitches. Companies that used to aim only at the upper "A" and "B" brackets of Egyptian consumers (those families earning more than £E 1,000 a month) appear, in a dramatic broadening of their marketing efforts, to be reaching out more aggressively to the middle and lower income brackets of "C" and "D" (those earning below £E 1,000 a month). Once considered consumers only of cheap detergents, soft drinks, cigarettes and potato chips, lower-income Egyptians are now being hounded to buy a much wider range of products, including higher-quality soaps, cosmetics, pharmaceuticals, home furnishings, electronics, cars, fast food and insurance.

To some, the strategy makes good economic sense. There is no shortage of companies aiming their clothes, food, cars and cellular phones at the high end of the Egyptian market, a segment a U.S. Embassy report says is up to 3 million deep. But there is also no shortage of companies who have found the upper market to be considerably less lucrative than expected, and some of those companies are now willing to gamble on a larger, if less wealthy, market.

Take McDonald’s. The company’s food a mass-market staple in the U.S. is so expensive in Egypt that in some circles the restaurants are considered five-star. Seeing the upper classes as its target market, McDonald’s built up heavily in wealthy neighborhoods. But the approach didn’t pay off. In 1996, the struggling chain executed a wholesale corporate restructuring. McDonald’s International pulled in and former franchisee Orascom pulled out, the latter complaining that the business couldn’t make money in Egypt.

Now, Sherif Seif El Nasr, the new vice president for marketing, sees enormous potential in the expansion of marketing to middle and lower income groups. And he ought to know. He’s intimately familiar with groups C and D after spending five years selling Chevrolet pickup trucks to fellaheen in the Delta. How, one wonders, did he persuade them to part with their hard-earned money and buy a vehicle that may have been twice as expensive as the alternative? It’s simple, he responds: "Dabbaba."

Dabbaba Arabic for tank conjured up images of power and glory in the minds of the fellaheen. Dabbaba translated the dry statistics of increased traction, engine power and durability into a symbol of status that was irresistible. "Dabbaba got to their hearts," Seif El Nasr explained. "And with the C and D classes, you’ve got to reach their hearts." The dabbaba image was so successful that it inspired imitation by other companies so much that it’s now the standard word for "pickup" in Egyptian Arabic.

Seif El Nasr now wants to spearhead the same type of aggressive, emotional advertising campaign for McDonald’s. What this means was clear to television viewers last Ramadan: the baby on a swing inexplicably alternating between laughter and tears as an image appeared and vanished from his field of vision. That image was the famous golden arches, and the commercial was unusual for Egypt: no dialogue, no commentary just an image, but a powerful one that viewers wouldn’t forget.

Of course, advertising won’t do it alone. To get interested consumers to actually buy, McDonald’s has introduced a series of price-cutting specials targeting certain products for a limited time. The usual line of value meals has been supplemented with simple offers for £E 2 cheeseburgers or £E 3.50 Big Macs. Working to bring its products closer to new customers, McDonald’s recently announced plans to expand into Egypt’s second cities. Now, Delta cities like Tanta and Damanhour are considered suitable targets for investment, Seif El Nasr said.

Some economists and businessmen take a dim view of the broad-market strategy doubting whether it makes sense on either the level of a single company or the economy as a whole. According to AUC economics professor Steve Sullivan, when multinationals look at Egypt they see a potential production base, not a target for consumer goods. It’s simply too difficult for companies to make a profit from the middle and lower income groups, he argued. C and D don’t have any extra money to spend on non-necessities. And their necessities, often government subsidized, are too cheap to provide a profit margin for would-be competitors.

"You can’t even market Heinz tomato paste to lower income groups," Sullivan said. "This product is for A and B customers only."

Nasser Chourbagi, managing director of Consolidated Casuals, the local manufacturer of clothes under the brand names Mexx, NafNaf and Daniel Hechter, agreed. Although he’d like to deepen the market for high-quality clothes, he said it’s difficult to produce for C and D without going below the level of production costs. And, thus far, he believes multinational companies are hardly willing to resort to dumping products below cost to bring in new customers.

But while many Egyptians are clearly suffering, the buying power of the lower income segment may be underestimated. Contrary to widespread belief, poverty and income inequality aren’t nearly as severe in Egypt as they are in many richer nations. According to a 1997 report from the World Bank, only 7.6 percent of Egyptians are officially poor, meaning they earn less than $1 a day. By comparison, poverty in Indonesia (before the South-east Asian crisis), a country 25 percent wealthier than Egypt, was 27.5 percent; and in Peru, three times as wealthy, nearly 50 percent.

And Egypt is growing. In that same report, the World Bank upgraded Egypt’s economic status from low income to lower-middle income after the country’s annual percapita GDP topped $750. The report’s conclusions, however, were based on old statistics: analysts now put annual per-capita GDP at more than $1,000.

The distribution of income or consumption in Egypt, meanwhile, nearly mirrors that of the U.S. The least weal-thy 60 percent of Egyptians account for 37.5 percent of income or consumption. Compare that with Peru, where the same market segment accounts for less than 30 percent of income or consumption, or even the U.S., where the bottom 60 percent’s share is 33.1 percent.

Although some companies are still taking a wait-and-see approach to competing for Egypt’s broader market, others are seeing the signs of opportunity in these numbers. If yours is one, there are a number of strategies you can take to get around the obstacles to market penetration. Increasing the diversity and sophistication of your advertising appeals is obviously the key to attracting attention. But there are also ways to get beyond the limitations of the consumer’s wallet, namely credit, packaging, and dumping.

Credit is not exactly new to Egypt, but it is starting a new phase of expansion, which will bring in a host of new consumers previously held back by the onerous demand of having to pay up front. Automobiles and trucks, with their easy-to-repossess collateral, are now standard items for sale on credit. Citro‘n, for example, long an underperformer among the many companies competing in Egypt’s market for locally assembled cars, has launched a major effort to market its cars to taxi drivers via a more affordable payment plan.

There’s room for expansion here lots of room and companies are lining up to sell. Kabnoury Co., for example, has been successfully pioneering the field of store credit for home furnishings, selling everything from window shutters to bedroom furniture on installment plans.

"You can’t live without credit," said Dina Ezzat, managing director of the Marketing, Communication & Research (MCR) Group. "And its role in the expansion of marketing will be crucial."

Companies looking to broaden their target markets will be helped by the banks, some of which are coping with the heavy competition for corporate loans and a tax-code revision that has eliminated their profitable business in treasuries by moving into the arena of consumer credit. The number of credit cards available has jumped sharply, and banks like Egyptian American Bank are working up new products in auto, real estate and consumer financing.

Companies will also get a hand from governmental initiatives aimed at opening a gold mine of untapped credit. An amendment to the 1957 Banking & Credit Law 163 currently in the works will enable the use of housing as collateral. If this amendment goes through, it won’t just mean loans to new buyers. It could also help uncork the vast real estate assets held by the poor (estimated at $241 billion according to a recent study by the Peru-based Institute for Liberty & Democracy). These assets could ultimately be offered as collateral for enormous cash loans that would stimulate a round of capital and consumer spending that multinationals could cash in on.

Of course, there are products like clothes and cosmetics that can’t realistically be sold in Egypt on credit. It’s hard, for instance, to imagine a company repossessing a pair of pants; and sources said that store credit cards won’t make an appearance here for some time. In such cases, companies often turn to repackaging. As with Pert Plus, companies can try to sell their products in smaller sizes. A customer unwilling to fork over £E 10 for a large bottle of upscale shampoo may be more willing to spend 10 piastres to lather up for a special occasion.

And, if that doesn’t work you can’t repackage pants there’s always dumping. But whisper the word. Selling products at or below cost to establish market share may be the darling child of some corporate strategists, but it is hated by governments concerned with trade balances and the development of local industry and by company accountants with an eye on earnings. Nevertheless, it could be seen as the ultimate sign of faith in an economy’s long-term potential. No one can afford to lose money forever. The idea behind dumping is to establish a network of loyal customers, then gradually pull up prices to profitable levels when economic growth pulls incomes up.

For obvious reasons, it’s extremely difficult to get a company to own up to this sort of behavior here. But dumping is exactly what multinational companies are doing to gain a foothold in China and other developing countries in the Far East. They are taking a loss, biding their time and positioning themselves for the millions of customers they hope will eventually become wealthy enough to fall into their nets. And they are staying put, despite the fact that losses have been piling up for several years now. Multinationals have yet to become as enthusiastic about Egypt but the stable growth of the past five years may be changing that.

Of course, there’s more to broader marketing than corporate profits. A sustained effort to sell to lower income groups could have macroeconomic implications that affect Egypt’s potential to grow. On the negative side, one can point to threats in two obvious areas: the trade balance and the savings rate. Although sales by Egyptian companies and multinationals with production bases in Egypt must be expanded to ramp up growth and employment and to attract more foreign investment, efforts to secure those sales could trigger an unwelcome surge in imports. With Egypt’s export base still struggling to take off and its trade deficit at around $10 billion, Egypt’s current account can’t afford new charges on the nation’s already growing import bill.

The savings rate is another serious issue. Egyptians are saving just about 17 percent of GDP well below the developing country average of 26 percent and even further below the fast-growing Asian country average of 31 percent. A lack of savings means a lack of capital to fund growth, and an expansion of aggressive marketing tactics that boosts consumption will hardly encourage Egyptians to save more.

But the positive side of the picture is also compelling. Multinationals encourage competition on a local level by putting sluggish domestic companies on notice and inspiring imitation. This imitation, retailored to local tastes, can often beat multinationals in the long run. And imitation by local companies, backed by innovation and adaptation, can eventually lead to export growth. It’s worked before in Asian countries, and it stands to reason it will work in Egypt.

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